XM-Sirius merger could cost leagues

The proposed merger of the
country’s two satellite radio companies could potentially cost sports leagues and
media networks hundreds of millions of dollars in lost rights fees and advertising revenue over the next
decade.

The problem isn’t with the
contracts the leagues have signed with XM and Sirius over the past several
years, which are expected to remain in place. The change would come once the
leagues’ deals end and they have to negotiate new ones without a bidding war between rivals.

Major Sports Deals

SIRIUSAFL: Entering first season of a two-year dealNASCAR: Five-year, $107 million deal through 2011NBA: Multiyear extension signed in Dec. 2005NCAA: Three-year deal for men’s March Madness ends after this year’s tournamentNFL: Seven-year, $220 million deal through 2010 seasonNHL: Final season of three-year, nonexclusive dealNLL: Multiyear deal announced earlier this month

XMMLB: 11-year, $650 million deal through 2015NHL: 10-year, $100 million deal through 2015PGA Tour: Signed through 2008U.S. Open Series and U.S. Open (tennis): Three-year deal through 2008

“In terms of negotiating
leverage, the merger is certainly a negative for sports properties,” said David
Bank, equity research analyst for RBC Capital Markets.

That competition between
the two rivals led to a windfall for sports leagues (see chart).

The NBA would be the first
to test the new market, since its deal with Sirius ends after 2007-08 season.

For sports-based
programmers such as ESPN Radio, a big question centers on ad revenue. The
combined company will have 13.6 million subscribers, double the number for
either platform. XM has 7.6 million subscribers; Sirius has 6 million. But some
ad buyers are skeptical that ad revenue would jump significantly with a merger.

“It remains to be seen if
they get twice as much money for twice as many subscribers,” said Matthew
Warnecke, vice president of national and local radio for Mediacom.

In fact, ad revenue could
drop if government regulators impose conditions. One theory has the Federal
Communications Commission placing an a la carte condition on the deal to allow
subscribers to buy individual channels.

Officially, the leagues
are keeping a brave face.

John Shannon, the NHL’s
senior vice president of broadcast, said, “The ramifications, I don’t think we
know yet. If you tell me we’re going to be getting our content to 13 million
homes now, that’s a positive for us.” Similarly, MLB President Bob Dupuy said,
“I expect no negative impact.” The NFL, however, is taking more of a
wait-and-see approach, releasing a statement saying, “We are following the
Sirius-XM merger closely, but are not in a position now to delve into the
details of what it would possibly mean for our fans or our finances.”